Recent news has seen a lot of turbulence surrounding the launch of Paycoin and its progenitor, GAW Miners CEO Josh Garza. A polarizing argument has arisen over the value of Paycoin, the Peercoin fork which many feel has too many promised deliverables to be real. At issue, is the perceived value of Paycoin. In a […]

Bitcoin Price is trading below, but remaining close to, critical support currently rising near $280. Bitcoin Value Analysis Time of analysis: 15h00 UTC BTC-China 4-Hour Chart The longer-term 4-hour chart shows price decisively below both the green 20MA (moving average), as well as the red 200MA. BitFinex 1-Hour Chart Due to an outage, the Bitstamp […]

Although most people understand that the real estate crisis of 2007-2008 led to a housing-price collapse and the Great Recession that followed, the new paper describes exactly why it is that a housing bubble also manages to trigger unemployment, revenue decline at corporations, and lower GDP.

One chart shows that even years later, consumer spending in Ireland — one of the hardest hit by the crash — remains up to 20% below its peak. (Private consumption is normally the largest component of a nation's total GDP.)

For many countries, the run-up to the financial crisis was marked by the sharp concentration of investment in the housing market both by individuals and the financial sector.

Indeed, as Matthew Klein puts it in a recent article in FT Alphaville, "the growth of the financial sector since the 1970s can be attributed almost entirely to the explosion of mortgage credit (mostly residential but also commercial) rather than lending for business investment or traditional consumer borrowing".

So what happens when the housing market goes bust?

A recent International Monetary Fund (IMF) paper looked at the fortunes of four European countries over the crisis that all experienced housing booms followed by busts — Denmark, Ireland, the Netherlands, and Spain. Although the differences in their experiences are marked in terms of the severity of the downturns they experienced, there are a number of common features that could prove crucial to our understanding of the impact of future economic shocks.

Firstly, falling house prices lowered demand both during and after the crisis. This is because lower prices reduce the amount of borrowing that households can raise against their property. Less credit tends to mean less spending, generally.

It also increases the loan-to-value ratio of mortgage debt (the value of the debt will rise as a percentage of the value of the property as prices fall). In some cases, this leads to negative equity, whereby even selling the house will not be sufficient to repay the debt. This traps people in their properties, prevents them from borrowing further against the property, or forces them into bankruptcy.

In all scenarios, the owners can't clear their debts or take a profit on a sale — and that depresses spending too.

Moreover, housing has increasingly become the savings vehicle of choice. Substantial falls in their value could have implications for the sustainability of people's finances in retirement and force precautionary saving (people holding on to more of their income rather than spending it) in order to compensate for this perceived shortfall.

As you can see from the IMF chart below, falling house prices appeared to have weighed on private consumption in all of the countries that the paper looked at during the crisis. Note how far Ireland's consumption has fallen from the peak:

However, the housing bust also impacted demand by curtailing investment both directly and by restricting small business investment, which is overwhelmingly secured against property. This has the short-term impact of reducing the amount currently being spent in an economy, but also longer-term costs as it holds back new business creation and prevents investment to expand existing small businesses.

If prices fail to return to pre-bust levels, a housing crash can leave a large debt overhang, forcing households to focus on paying down their debts and constraining domestic demand. At the end of 2013 almost 30% of mortgages in the Netherlands were still categorised as "underwater" (the value of the property is worth less than the mortgage held against it), while in Ireland that figure is a staggering 52%.

By contrast the figure for the US is 13% and for the UK it is somewhere between 1.6-6.4%.

This debt overhang will continue to exert an economic drag for years after the initial impact of the financial crisis has abated, holding down growth, lowering the ability of people to move to find new jobs and maintaining pressure on household finances. As such the effects of a housing crash should be seen as the long tail of the Great Recession beast — still thrashing about even after the threat of catastrophe has been averted.

Wedbush Securities, a very large investment banking and brokerage firms is looking to hire a Bitcoin director to oversee all aspects of Bitcoin transactions within the firm. According to the Wedbush website, the position opening went live on January 8th 2015 and Wedbush seek to fill the position as soon as possible. After acquiring holdings […]

Prior to Isabel Cruz accepting Bitcoin, Portland, Oregon has been very slow to integrate Bitcoin into businesses within the city, much slower than many cities that are smaller in size. Isabel Cruz is well known for their unique menu, superb breakfast items, and the micro brews available on tap. Isabel Cruz is among the first […]

Have you been thinking about a career in FinTech? Are you on the hunt for a Bitcoin job? If so, we’re here to lend a helping hand. Startups in the Bitcoin Industry are looking for skilled professionals to join their teams, and we’re bringing you new opportunities every week. Check out this week’s Bitcoin job listings and start applying. Also read: 10 Bitcoin Job Openings To Kick Off 2015 New Bitcoin […]

Bitstamp, the well-known bitcoin exchange that saw the equivalent of $5 million in the cryptocurrency disappear after a breach by malicious hackers, was notably absent during last week’s CES show — its pre-paid stand completely empty save for a fan of trade mags laid out by a hopeful publisher. Instead of manning their booth, reps from company, we heard, were holed up in a… Read More